Antitrust Regulations Lag Behind Mania For Mergers

January 12, 2000|By Merrill Goozner, Washington Bureau.

WASHINGTON — The rapid consolidation of once separate industries for telecommunications, media and the Internet is clearly shaping the 21st Century Information Age. What is not so clear is whether the antiquated U.S. regulatory structure knows how to deal with it.

The immediate reaction among antitrust experts to the mammoth America Online Inc.-Time Warner Inc. merger was that the deal will pass government muster after a dutiful review. Indeed, AOL chief Steve Case moved quickly to assuage potential critics by promising rival Internet service providers equal access to Time Warner's important cable television lines.

But open access will remain uppermost in the minds of federal regulators as they review the deal. Antitrust experts said Tuesday that it's unlikely the government will rely on Case's mere promises, but rather insist on a consent decree that spells out the terms of such access.

Still, access is not the only question raised by critics of the corporate marriages now being consummated in the emerging information industry. As was true with oil and steel long ago, there are ringing concerns about the sheer size of mergers and the shrinking number of conglomerates that soon will dominate an industry central to the nation's economy.

Critics also are expressing fears that such concentration in dissemination of all types of information--from news to movies to the minutes of PTA meetings--could wind up restricting the peoples' choices, both as consumers and citizens.

"This deal culminates five years of frantic dealmaking that have seen our media culture come to be dominated by less than 10 translational media firms operating in largely non-competitive markets," said Robert McChesney, professor at the Institute of Communications Research at the University of Illinois.

"With so many mergers screaming across the headlines, people are beginning to worry that concentration of economic power is getting out of control," said Stephen Calkins, a law professor at Wayne State University and a member of the American Bar Association's antitrust section. "They worry that might have economic consequences down the road."

When the antitrust laws were written around the turn of the last century, the populist mood of the nation had turned against the large trusts that dominated the times. Big was necessarily bad. That mood lasted well into the post-World War II era.

But the economic woes of the 1970s provided an opening for a school of economists and legal scholars centered at the University of Chicago to question the reigning orthodoxy.

Scholars like Richard Posner, now a federal appeals court judge, and Robert Bork, now at the American Enterprise Institute, suggested that vertical combinations (where a company owned both upstream suppliers and downstream wholesalers and retailers) were good for competition because they created greater efficiencies and provided goods and services at lower costs.

During the Reagan administration, antitrust prosecutions by the Justice Department fell to record lows. The one big case of the era--the break-up of AT&T--did reflect the Chicago school's equal abhorrence of government-sanctioned monopolies on grounds they slowed innovation and kept prices artificially high.

But starting in the late 1980s, a backlash against the Chicago school began to build. Scholars who would become top regulators and antitrust enforcers in the Clinton administration argued that vertical conglomerates also could stifle competition. That could occur when one player controlled a very large segment of its section of an industry and used that leverage to force customers not to deal with its rivals, or perhaps force suppliers to raise prices for its rivals.

Using that theory, the Justice Department engaged in a running battle with Microsoft Corp. That led first to a 1994 consent decree to put a halt to exclusive agreements with equipment-makers and more recently to the broad antitrust suit aimed at Microsoft's alleged predatory business practices in the Internet browser market. Judge Thomas Penfield Jackson's findings of fact in November endorsed much of the government case.

Those types of questionable practices haven't been limited to high-flying Information Age industries. Pepsi lodged a private suit against Coca-Cola on similar grounds, and Barnes & Noble dropped its proposed acquisition of a major book wholesaler when the Federal Trade Commission said it would investigate the deal's impact on other book retailers.

Using corporate alliances to freeze out competition has taken on special importance among Information Age companies as consolidation in the field accelerates. For instance, AOL became one of the loudest proponents of open access after AT&T began buying cable firms like Tele-Communications Inc. and Media One Group Inc., fearing its own proprietary service might be excluded from large portions of the nation.

Now smaller Internet service providers and public access advocates fear the worst, despite Case's promises Monday.